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Energy Sector News

300 pounds: That’s how much coal was not burned in a distant power plant in December as a result of the solar panels we installed on our house in Wyoming this fall. Being December, it was our lowest monthly generation period, with low sun angles and periodic snow covering our panels. The Copelands’ home solar project. Photo: Creative Energies An as

The total thickness of a single cell and separator is just 0.4 mm, which is approximately one tenth the thickness of conventional technology. Because it is so thin, The Printed Fuel Cell (™) achieves 5 kW/L, which is the highest level in the world.

Jim LaneThe first of the “2010-12 IPO kids” completes its
transformation to a lively, product-driven commercial company with
revenues in fragrances, emollients, solvents and fuels.

In California, Amyris (AMRS)
announced Q4 2014 revenues of $11.6 million and $43.3M for the
full year, a 5% increase over 2013, and Q4 net income of $58.0
million and $2.3 million for 2014 as a whole.

The company noted that product sales increased by nearly 50%
despite lower than expected fuel sales in the second half of the
year, due to drop in crude oil prices and currency headwinds.
Collaboration and grant revenues were lower due to timing of
government-funded project completion and previously outlined shift
from upfront to milestone collaboration payments.

“2014 was a transformative year for Amyris. We delivered on the
promise of our technology by manufacturing at industrial scale two
breakthrough molecules now used in a range of product sectors —
from consumer care to transportation. We realized record-low
production costs at our Brotas industrial biorefinery, further
reduced operating expenses and, with successful financing efforts,
achieved our strongest year-end cash position in three years,”said
John Melo, President & CEO.

“In 2015, we expect to build on our track record by expanding our
renewable product portfolio and, more importantly, expanding our
collaboration partnerships into new markets, such as
biopharmaceuticals. Based on our plans and current performance
during the first part of the year, we expect to achieve positive
cash flow from operations in the first quarter, paving the way to
exceed $100 million in total revenues for the full year,”
concluded Melo.

• Better-than-planned cash production costs for our first
fragrance molecule, meeting critical milestones for a leading
collaboration partner.

• In marketing, the company introduced several new products,
including a new emollient under our Neossance line; a
high-performance solvent for industrial cleaning under brand name
Myralene; and renewable jet fuel with our partner TOTAL, now
included in global aviation specifications.

• Operationally, Amyris upgraded the Brotas plant during current
sugarcane inter-harvest season, “allowing us to continue our focus
on reducing production costs in 2015.”

New financing

At the same time, Amyris announced that it entered into a Common
Stock Purchase Agreement under which Amyris may from time to time
sell up to $50 million of its common stock to Nomis Bay Ltd. over
a

24-month period. Amyris will control the timing and amount of any
sale of common stock to Nomis Bay, and will know the sale price
before instructing Nomis Bay to purchase shares. When and if
Amyris elects to use the facility, the company will issue shares
to Nomis Bay at an undisclosed discount to the volume weighted
average price of Amyris’s common stock over a preceding period of
trading days.

The company’s cash had dwindled to $43.4M by year end.

“This facility provides us with a flexible source of common stock
financing as our business grows, allowing us to strategically
manage whether and when to draw on the facility based on market
dynamics and other considerations,” said Melo.

Analyst reaction

Cowen & Company’s Jeffrey Osborne writes:

“Amyris posted soft Q4 results, with revenue of $11.6 mn down 25%
y/y and non-GAAP EPS of ($0.40) below Street of ($0.29). Soft
product sales were a function of timing and a decline in fuel
sales due to oil economics. The shift of collaboration revenues to
contract milestones provides better perspective going forward.
Management guided $100+ mn revenue for ’15, carried by an expected
record Q1.”

Raymond James’ Pavel Molchanov comments:

“Recommendation. After a period of retooling while in the
“overpromise and underdeliver” penalty box, 2013-2014 were Amyris’
first years with operations truly in commercial mode. There is
visible scale-up progress, but the historical reliance on
partner-based R&D payments makes quarterly financials choppy.
There was a sizable miss on the top line, with product sales
falling from 3Q’s $11.5 million to only $4.7 million, partly due
to dollar headwinds. Cash on hand ended the quarter at $43
million, down from $69 million as of 3Q.”

“Over the past month, Amyris entered two brand-new market
segments – both in the high-value, non-oil-levered category.
January marked the launch of industrial cleaning products based on
the Myralene renewable solvent platform, with the goal of selling
into the auto service market and other industrial end users.

“Even more intriguingly, the microPharm discovery and production
platform aims to provide the pharma industry with an integrated
process for developing therapeutic compounds. While microPharm may
seem like a departure from Amyris’ business focus, it’s worth
recalling the company’s past (pre-IPO) work on antimalarial drug
precursors.”

What does it cost and what does Amyris make on farnesene?

As Osborne noted: “Management has guided an ASP range of $6 to $8
per liter for 2015…with continued farnesene cost reductions, which
is now below $3 per liter in cash production cost.”

What is the product mix expected in 2015?

The Digest’s Take

We’ve watched Amyris through its period as the #1 Hottest Company
in the sector, through a value-crash after delays in getting to
commercial-scale production volumes, it’s “Comeback of the Year”
period in 2013-14 as it put production right, and now into its
first strong commercial flowering. A sense of excitement has
returned to the Amyris story — it’s become more about product
surprises and the upside than operational surprises and the
downside.

The cash production cost remains high. $2.50 per liter is going
to drive some exciting returns in niche markets such as fragrances
— and pharma opportunities will abound — but the larger markets in
chemicals and fuels will have limited exposure to Amyris products
for now.

Bigger and better?

Back in 2010, Amyris released some interesting figures on its
performance — of course, these were before full-scale production
got underway in Brotas. At the time, the company disclosed that it
had reached 16.8% farnesene yields. Maximum theoretical is 30%. We
haven’t heard much lately about actual production yields, but
usually somewhere around 85% of theoretical is a reasonable limit
in day-to-day operations, and that would put Amyris at around 25%
yields. Product recovery rate in 2010 was already 95%.

So that leaves the company with a pound of product from four
pounds of sugar, which would cost $0.56 (at the current sugar
price of $0.14 per pound) – and with 7 pounds of diesel in a
gallon — the big markets in fuels are going to be a tough
proposition for some time to come. And that’s not taking into
account the operation cost of the facility or the amortized capex.

But there are a number of caveats there. Firstly, Brazilian
projects do not buy sugar, they make cane sugar and the production
price can be somewhat lower, if cane yields are good. More
importantly, Amyris may not be making jet fuel from C15 farnesene
at all — but rather, might make it from C10 isoprenoids, where the
theoretical yields will be much higher.

To that end, it’s worth noting that Amyris still has on the books
agreements with Sao Martinho to build two new production plants
that would each be double the size of its first commercial
faciliity in Brotas — overall, a quadrupling of capacity and
better economies of scale.

In 2012, Amyris CEO John Melo addressed most of these hopes in
his springtime address at ABLC, projecting at the time that the
company would produce finished products in six verticals — fuels,
lubrivcants, polymers & plastic additives, home & personal
care, flavors & fragrances and cosmetics. We’ve seen most of
those product lines come to life, and the pharma route is a
seventh route to revenue for the company.

As Pavel Molchanov notes. “The market wants to see more clarity
on the pace at which Total will be scaling up its fuels joint
venture with Amyris – a prospect we have questions about in the
context of the oil and gas industry’s current period of
austerity.”

In two weeks, Melo will come back to ABLC with another major
address — and we’re looking forward to hearing more about the
Total JV, the potential for added capacity, the efforts to drive
down production costs that open new marlets, and the state of
efforts to unlock the large markets in fuels and chemicals that
will take Amyris along the road toward “billion-dollar company”
status.

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